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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Saudi Arabia: We’ll Pump The World’s Very Last Barrel Of Oil

Saudi Arabia isn’t buying the peak oil demand narrative.  

OPEC’s largest producer continues to expect global oil demand to keep rising at least by 2040 and sees itself as the oil producer best equipped to continue meeting that demand, thanks to its very low production costs.

Saudi Arabia will be the one to pump the last barrel of oil in the world, but it doesn’t see the ‘last barrel of oil’ being pumped for decades and decades to come.  

“I don’t see peak [oil] demand happening in 10 years or even by 2040,” Amin Nasser, president and chief executive officer of Saudi oil giant Saudi Aramco told CNN Business’ Emerging Markets Editor John Defterios on the sidelines of the World Economic Forum in Davos this week.

“There will continue to be growth in oil demand … We are the lowest cost producer and the last barrel will come from the region,” Nasser told CNN.

For several years, Nasser has been saying that peak oil demand is nowhere in sight, that petrochemicals will drive oil demand growth through 2050, and that all the ‘peak oil demand’ and ‘stranded resources’ talk is threatening an orderly energy transition and energy security.

Saudi Arabia—which has just announced that its huge oil reserves are slightly higher than previously estimated—looks to diversify its economy away from heavy dependence on crude oil, but one of the goals of its Vision 2030 diversification plan is to use less oil in domestic power generation to free up more barrels for exports. Related: IEA Chief: EVs Are Not The End Of The Oil Era

As the world’s top crude oil exporter, Saudi Arabia will not be giving away easily its crown and the geopolitical clout that comes with it.

The Saudis have the two key ingredients to continue pumping oil till kingdom come—huge reserves and low production costs.

In addition, various organizations, including OPEC, estimate that shale production in the world’s current top oil producer—the United States—will peak at some point in the late 2020s, reviving demand for crude oil from OPEC (and its biggest oil producer Saudi Arabia).

Earlier this month, Saudi Arabia announced that an independent estimate of its oil reserves by DeGolyer and MacNaughton (D&M) showed that the Kingdom’s total proven oil reserves were 268.5 billion barrels as of the end of 2017, up from around 266 billion barrels previously estimated.

The BP Statistical Review of World Energy 2018 put Saudi Arabia’s oil reserves at 266.2 billion barrels at end-2017, or 15.7 percent of global oil reserves, second only to Venezuela’s 303.2 billion barrels.

DeGolyer and MacNaughton said last week that it completed the first contemporary independent assessment of reserves in Saudi Arabia, adding that at this point, it would “make no further comments on this extensive project.”

“This certification underscores why every barrel we produce is the most profitable in the world, and why we believe Saudi Aramco is the world’s most valuable company and indeed the world’s most important,” Saudi Energy Minister Khalid al-Falih said in the statement released by the Saudi Press Agency.

Saudi Aramco’s cost of production is just $4 a barrel, al-Falih later said in a news conference, as carried by Reuters.

Saudi Arabia may need oil prices higher than $80 a barrel to balance its budget because most of the income comes from oil. Yet, the Kingdom has what is probably the world’s lowest cost of pumping one barrel of oil. Related: Energy Transition Will Upend Geopolitics

While surging U.S. shale production has been boosting the global oil supply which Saudi Arabia and OPEC and non-OPEC Russia are looking to drain again with a new round of production cuts, current estimates point to shale peaking in the late 2020s.

According to the International Energy Agency (IEA), U.S. tight oil production will continue rising through 2025, and “Thereafter, with our current estimate for recoverable resources, production starts to fall gradually.”

In its latest World Oil Outlook, OPEC sees non-OPEC supply peaking in the late 2020s, mainly because of expected U.S. tight oil supply peak. In the medium term, through 2023, demand for OPEC crude is seen waning to 31.6 million bpd in 2023 because of non-OPEC supply growth. But after that, with the U.S. shale peak expected in the late 2020s, OPEC forecasts that demand for its crude will start rising again, to reach nearly 40 million bpd by 2040.

Will the world need oil in 2040? Saudi Aramco’s answer to this question is an emphatic ‘yes’.

The world will continue to need a lot more oil and a lot more exploration will be needed just to offset declining oil production at mature fields, Aramco’s Nasser said in Houston last year.

The energy transition is much more complex than simply replacing oil with renewables and electric vehicles (EVs), Nasser said last March and added: “In other words, I am not losing any sleep over ‘peak oil demand? or ‘stranded resources?.”

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on January 24 2019 said:
    The claim that Saudi Arabia will pump the world’s very last barrel of oil is neither accurate in terms of proven oil reserves nor true about being the lowest cost producer in the world.

    In terms of proven reserves, Venezuela has the world’s largest reserves at 303.2 billion barrels of oil (bb) followed by Saudi claims of 266.2 bb. However, many experts estimate that Iraq is sitting on the world’s largest oil reserves estimated at more than 400 bb made up of proven (147), semi-proven (50) probable (165) and possible recoverable reserves (70)) and the cheapest production cost estimated at $2 a barrel to boot compared with $4 for Saudi Arabia. Many years ago, I coined the phrase that “if Saudi Arabia is floating on a sea of oil, Iraq is floating on a Pacific ocean of oil”.

    So if there is one country which will have a claim to the last produced barrel of oil will be Iraq, followed by Venezuela and then Saudi Arabia.

    However, for years experts have been casting doubts on Saudi claims about the size of their reserves. The claim that an independent audit has confirmed Saudi proven reserves is false.

    The Audit can neither be independent nor unbiased since some of the companies that conducted the audit (DeGolyer, MacNaughton, and Baker Hughes’ Gaffney, Cline, and Associates) have or have had service contracts with Saudi Aramco, so it can’t truly be classified as an independent audit.

    Moreover, the claimed audit smacks of a blatant attempt by Saudi Aramco abetted by foreign oil companies which are beneficiaries of Saudi Aramco largess to resurrect the IPO of Saudi Aramco. This attempt is bound to fail miserably because the IPO is dead and buried. Saudi King Salman ordered its withdrawal because of risk of American litigation related to the 9/11 destruction of the World Trade Centre in New York and question marks about the true size of Saudi proven oil reserves.

    My calculation of Saudi reserves based on Saudi production since the discovery of oil in 1938 till now (for which we have figures) and a deduction of an annual depletion rate of Saudi aging fields averaging 5%-7% for the same period, gives a figure of 70-74 bb of remaining reserves. My figures are more or less in line with those of other experts.

    The fact that Saudi Arabia’s proven reserves remained virtually constant year after year despite sizeable annual production and a lack of major new discoveries since 1965 is due to the Saudis increasing the oil recovery factor (R/F) to offset the annual production. The Saudis have been declaring an R/F of 52% or even higher when the global average is 34%-35%.

    It is debatable as to whether a peak oil demand could be reached during the 21st century or even beyond. The one certain thing is that oil is expected to remain the world’s primary energy source throughout the 21st century and probably far beyond.

    Still, oil demand growth could be projected to decelerate a bit on the back of efficiency improvements driven by technological developments, a tightening of energy policies, a drive towards renewables and a relatively low (albeit increasing) penetration of electric vehicles (EVs).

    A post-oil era is a myth throughout the 21st century and maybe far beyond. Likewise a global energy transition from fossil fuels to renewables during the 21st century is a bridge too far. Oil will continue to reign supreme throughout this century and far beyond.

    As for US shale oil, there are numerous and very reliable reports of a slowdown in production.
    The writing is on the wall for the US shale oil industry. Its demise is neigh probably within the next 5-10 years.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Tom Baxter on January 28 2019 said:
    As an average working Australian man I considered buying a new Nissan Leaf as a car for my retirement, but after analysis of the longevity of the battery and it's replacement cost I discarded the option. Many of us also buy used cars, and a 4 or 5 year old used conventional vehicle is good value for money. But who will buy a used EV with a half dead battery and an $8000 replacement bill due in a 4 years? Not many I suspect.

    There are youtube reviews by Leaf owners that detail this phenomena of battery degradation, but our own experience with lithium batteries in cell phones tells the story. People have not thought the EV solution through. They have been thinking in terms of wealthy buyers, not the average buyer on the roads today.

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